IF IT is still true that when America's economy sneezes ours gets a cold then we should probably prepare ourselves for a dose of the flu.

Financial markets around the world took another battering yesterday despite the US Federal Reserve cutting interest rates.

The move failed to halt steep declines on Wall Street and many analysts are predicting that it will also not be enough to head off a full-scale recession.

If that happens then it is bad news for economies across the world, not least ours.

Monday saw the biggest one-day fall in the FTSE Index since the September 11 attacks in 2001 and despite a small recovery yesterday, it is still suffering the worst trading start to a year since records began.

There will no doubt be another interest rate cut in America next week and similar action must follow here. The Bank of England's monetary policy committee - the body that sets interest rates - does not meet until early next month.

And while it is rare for there to be unscheduled rate moves there will no doubt be increasing pressure on the Bank to act sooner.

Economic turmoil added to high oil prices and the increased cost of staple foodstuffs such as bread do not signal good news for the rest of the year.

There is no doubt the Government faces a struggle to keep a lid on inflation and the economy steady.

A cut in interest rates is a must - but even that may not be enough to smooth what is likely to become a bumpy ride in the months ahead.